The success of B Corps: Funding, Profitability, and Public Perception
BY: Aster Cheng, RBFL Editor
The priorities of consumers are changing––as consumers place more weight on the environmental and social impacts of companies in their decision making, more companies are choosing to become B Corporations (“B Corps”).[1] B Corps are for-profit companies who have met a standard of ESG factors established by B Lab, a nonprofit organization.[2]
To be considered a B Corp, companies must (1) pass an initial assessment to demonstrate “high social and environmental performance”; (2) alter its corporate governance structure to be accountable to all stakeholders, not merely shareholders; and (3) allow their performance evaluations to be publicly available on B Lab’s website. [3]
B Corps’ costs include the certification fee, annual membership fees, and administrative costs for B Lab requirements like preparing social impact reports.[4] However, some B Corps view these costs to be necessary, citing the community as a benefit of being certified[5] due to additional business opportunities[6] and discounts through B Lab partnerships.[7]
B Corps are still new and whether they are more profitable than companies who are not certified B Corps remains unanswered.[8] However, trends have shown that consumers favor companies and investments within the ESG space.[9] McKinsey researchers have found that companies in the top quartile for gender diversity are 15 percent more likely to perform above medians, and those that rank in the top quartile for racial and ethnic diversity are 35 percent more likely to perform above medians.[10]
Consumers are also increasingly mindful of whether a company’s values align with their own before spending their money.[11] Ben & Jerry’s, a subsidiary of a Certified B Corp (Unilever), claims their own company’s research shows that consumers are 2.5 times more loyal to companies that integrate values-driven action throughout their supply chains.[12]
Corporations are increasingly taking on the persona of a responsible citizen, while performing practices that prioritize maximizing their profits.[13] Several certified B Corps have been exposed for predatory practices within their supply chain, yet none of their certifications have been revoked. Nespresso, a certified B Corp despite being a subsidiary of Nestlé, has been involved in a string of human rights violations like wage theft and child labor.[14] Another B Corp, Danone, dropped the contracts of 89 small organic farms across New York and New England.[15] B Lab reviewed the situation and found that this was not in violation of B Corp standards.[16]
While B Lab is the first to take on this level of a project, there are still obvious improvements needed. As the trend of conscious consumerism grows, companies have realized there is an upside to being a B Corp. It is up to B Lab to enforce and revise the standards they have set to ensure that companies are focused on their ethical mission rather than what the façade of prioritizing ethics can do for its profits. Without enforcement or regulation, these standards mean little and the B Corp label is nothing more than a greenwashed marketing ploy.
[1] B Corp, https://www.bcorporation.net/en-us/ (last visited Nov. 29, 2022) [https://perma.cc/7TXA-LWT3].
[2] Id. (explaining the goals and nature of B Corps).
[3]B Lab, B Impact Assessment, https://www.bcorporation.net/en-us/programs-and-tools/b-impact-assessment (last visited Oct. 16, 2022) (displaying B Lab’s impact assessment which is filled out by all prospective B Corporations during initial certification and for all recertification every two years) [https://perma.cc/N4VV-6KRZ].
[4] Melanie Broome, “I Want to be a B Corp”: What This Means and What to Consider Before Stepping Into the World of Benefit Corporations, Davis Wright Tremaine LLP (Jul. 6, 2020), https://www.dwt.com/blogs/startup-law-blog/2020/07/i-want-to-be-a-b-corp. (“There are additional costs and (potentially significant) administrative burdens associated with PBCs and Certified B Corps. PBCs and Certified B Corps have to prepare social purpose reports. This will likely take time to create, thereby adding costs to the company’s bottom line. Additionally, Certified B Corps are required to pay annual membership fees based on the B Corp’s annual sales.”) [https://perma.cc/W6AD-87ZL].
[5] See Alex Buerkle, Kylee Chang, and Max Storto, Just Good Business: An Investor’s Guide to B Corp, Yale Ctr. for Bus. and the Env’t, (Sept. 14, 2022) https://cbey.yale.edu/sites/default/files/Just%20Good%20Business_An%20Investor%27s%20Guide%20to%20B%20Corps_March%202018.pdf (“Many Certified B Corps cite the B Corp community as a primary benefit of becoming certified.”).
[6] See, e.g., Press Release, Brewbound, New Belgium Brewing to Release Second Ben & Jerry’s Ice Cream-Inspired Beer, (Jun. 20, 2016), https://www.brewbound.com/news/new-belgium-brewing-release-second-ben-jerrys-ice-cream-inspired-beer/ [https://perma.cc/2BB5-RD4W] (elaborating on the release of new ice cream flavors); see also Press Release, Newswise, B-Corporations Unite: Green Home Store New Living Partners with Savvy Rest Organic, (Oct. 30, 2013), https://www.newswise.com/articles/b-corporations-unite [https://perma.cc/F9RV-4WN9] (explaining new partnership between Green Home Store and Savvy Rest Organic, as well as its implications for B Corps).
[7] See Buerkle et al., supra note 9, at 33 (“In addition, Certified B Corps gain access to discounts through B Lab-cultivated partnerships. These savings can support cash-strapped entrepreneurs and often exceed B Corp licensing fees in value. For example, Salesforce offers up to 20 percent off its Client Relationship Manager (CRM), Intuit offers free Quickbooks licenses, and Inspire Commerce and NetSuite offer discounts on their credit card processing and enterprise software, respectively.”).
[8] See id. at 22 (elaborating on current feelings in public and legal society about trajectory of B Corps).
[9] See Hale, infra note 30 (displaying growth in ESG investments).
[10] Vivian Hunt, Dennis Layton, and Sara Prince, Why Diversity Matters, McKinsey & Company (Jan. 2015), https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters (“Companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians. Companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians”).
[11] Tara Gallagher, Letting Your Mission Drive Success: Lessons from Ben & Jerry’s and Seventh Generation, Sustainable Brands (2014), https://sustainablebrands.com/read/organizational-change/letting-your-mission-drive-success-lessons-from-ben-jerry-s-and-seventh-generation (“In fact, consumers that are aware of Ben & Jerry’s values are 2.5 times more loyal. To account for this, Miller states: “Ben & Jerry’s is authentic. Standing for something in a world where people so often stand for nothing is incredibly powerful.”) [https://perma.cc/2V8M-4Q8F].
[12] Id.
[13] Suntae Kim, Matthew J. Karlesky, Christopher G. Myers, and Todd Schifeling, Why Companies Are Becoming B Corporations, Harvard Business Review (Jun. 17, 2016), https://hbr.org/2016/06/why-companies-are-becoming-b-corporations [https://perma.cc/R745-89VG] (proclaiming that corporations are starting to change their attitude and public image, elaborating on the effects of this change).
[14] See Daniel Camargos, Labor inspectors fine leader of cooperative that supplies coffee to Nespresso and Starbucks, Repórter Brasil, (Sep. 9, 2021), https://reporterbrasil.org.br/2021/09/labour-inspectors-fine-leader-of-cooperative-that-supplies-coffee-to-nespresso-and-starbucks/ (explaining the issues and human rights violations found with the sourcing of coffee to Starbuck and Nespresso); see also Jamie Doward, Children as young as eight picked coffee beans on farms supplying Starbucks, The Guardian, (Mar. 1, 2020), https://www.theguardian.com/business/2020/mar/01/children-work-for-pittance-to-pick-coffee-beans-used-by-starbucks-and-nespresso. [https://perma.cc/5FK5-W5D6] (elaborating on the potential human rights violations undertaken by coffee producers who also happen to be B Corps).
[15] Lisa Held, Losing Danone Contracts Compounds the Dairy Crisis for Small Farms in the Northeast, Civil Eats, (Nov. 8, 2021), https://civileats.com/2021/11/08/losing-danone-contract-compounds-dairy-crisis-small-farms-northeast/. [https://perma.cc/Y2D8-V933] (explaining the impact of Danone’s decision to cut ties with many dairy farmers).
[16] Max Goldberg, With Danone Cutting the Contracts of 89 Small Organic Dairy Farmers, B Corp has Made a Decisions About the Company’s Certification Status, (Oct 27, 2021), https://organicinsider.com/newsletter/b-corp-danone-certification-status-cut-contracts-89-organic-dairy-farmers-new-york-new-england-your-weekly-organic-insider/. [https://perma.cc/WN42-59MU] (elaborating on the decision-making process of B lab and their application of that process to the issue of dairy farmers cut off by Danone).